Marijuana Ties May Signal 'Risky Lifestyle' to Insurers

July 08,2016 17:14

Insurers may view any association with marijuana as an indication of a “risky lifestyle,” not unlike skydiving or race car driving, said Loretta Worters, a spokeswoman for the Insurance Information Institute, which is funded by insurance companies to ...and more »

A few weeks ago, Derek Peterson got a letter from Mutual of Omaha, turning him down for life insurance.â€œOur decision was based on,â€ the letter said, then trailed off (Monty Python-style) and picked up in all caps:WE HAVE DISCONTINUED THE PROCESSING OF YOUR APPLICATION FOR INSURANCE DUE TO COMPANY POLICY. WE CANNOT ACCEPT PREMIUM FROM INDIVIDUALS OR ENTITIES WHO ARE ASSOCIATED WITH THE MARIJUANA INDUSTRY.Peterson is indeed associated with the marijuana industry. He is the chief executive officer of Terra Tech, a publicly traded potÂ company based in Irvine, Calif.But what he had applied for was a personal policy, to be paid for with his own money, to protect his family in the event of his death.â€œThatâ€™s what was insane to me,â€ said Peterson, who is now shopping at other insurers. â€œThat just felt really discriminatory and purposeful.â€A spokesman for Mutual of Omaha declined to comment on the denial, saying the insurerâ€™s underwriting guidelines are proprietary.The legalization of marijuana is creating headaches not just for new marijuana businesses such as Terra Techâ€”which already have serious trouble paying taxes and getting bank accountsâ€”but also for peopleÂ who work in the booming industry, as well as for those who donâ€™t. Even in states like Colorado that have legalized recreational pot, employees can be fired for using the drug on their own time. Landlords arenâ€™t sure how to handle pot-smoking tenants. So insurers and other financial services companies are mostly ad-libbing.Race Car DrivingInsurers may view any association with marijuana as an indication of a â€œrisky lifestyle,â€ not unlike skydiving or race car driving, said Loretta Worters, a spokeswoman for the Insurance Information Institute, which is funded by insurance companies to provide informationÂ aboutÂ the industry.â€œThe problem from a life insurance underwriterâ€™s point of view is that, unlike tobacco, there isnâ€™t a lot of data available to assess the risks of coverage for marijuana users,â€ Worters said. While some insurers will automatically deny coverage to marijuana users, others will simply charge them a higher premium, as they would a smoker, she said, while still others â€œtolerate an occasional userâ€ without imposing any premium penalty.Beyond the health concerns, thereâ€™s still the question ofÂ marijuanaâ€™s legality. The federal government, together with states, regulates banks, insurance companies, and other financial companies, and still classifies marijuanaÂ as a dangerous drug.As a result, â€œalmost anything that has to do with financial services can be an issue,â€ said Taylor West of the National Cannabis Industry Association, a nonprofit group that advocates for marijuana businesses. Marijuana dispensaries and other businesses have the hardest time getting bank accounts, West said, but individuals can run into trouble, too. Banks have closed the accounts of potÂ entrepreneurs and employees, who can also have problems getting mortgages, she said.Retirement plan providers and payroll companies can be leery of customers associated with marijuana. Westâ€™s group went through a number ofÂ 401(k) providers before finding one that was willing to takeÂ its employeesâ€™ retirement savings. Firms were scared off by the word â€œcannabisâ€ in the groupâ€™s name, West said, even though the organization does public advocacy, not pot cultivation or sales.While health insurance companies operate very differently from life insurers, they can also be reluctant to deal with marijuana businesses. Employees at a Terra Tech subsidiary in California are going without health benefits because, Peterson said, heÂ hasnâ€™t yetÂ found an insurerÂ willing to take them as clients.Peterson is never sure what kind of reaction to expect from a financial or insurance company. A salesperson might be enthusiastic to sign up Terra Tech as a new customer, but isnâ€™t clear how much his or her bosses know or whether the firmâ€™s compliance department would object, he said.â€œAre we getting the full buy-in from management? If weâ€™re not, thatâ€™s a risk,â€ Peterson said. â€œItâ€™s a precarious situation to be in.â€Marijuana users might find it easier than employees or entrepreneurs, like Peterson, to hide their hobby from insurers. But Worters, of the Insurance Information Institute, warns of the risks. Lying on an insurance application, or in an insurance medical exam, is fraud. And, she noted, if you die and the insurance company later discovers youâ€™ve been dishonest, it could reduce or cancel theÂ death benefit.Copyright 2016 Bloomberg.